CFO's role in Enterprise Risk Management | CFOevent

by Fredy Aga -?Head of Finance, Retail Products & Consumer Finance -?Standard Chartered Bank

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The 2008 global financial crisis may have become partly subdued but it has inevitably multiplied the fear factor in an ever uncertain world. Today, Corporate anxiety levels shoot up over a slight shift in any of their risk factors, which are evolving and being re-defined. The realisation that some of the non-credit risks like reputational, operational, strategic, financial, legal, technology can be equally if not more damaging has necessitated organisations to take an Enterprise Risk Management (ERM) approach.

An ERM approach requires a robust Governance framework comprising disciplined Process governance Committees (maybe across different business streams) and strong guidelines for new products / segments. While Chief Risk Officers may be primarily responsible for (Credit) Risk Management, Risk management is becoming a key objective and challenge of every senior executive within the organization. Very often and in different ways, CFO?s play a leading role in the Enterprise Risk Management of their respective areas. This may vary depending on the maturity and size of the organisation, sophistication of risk, nature of business, structure and culture. A few tips for CFOs to manage enterprise risks are:

1) Think broader ? today?s CFO cannot restrict themselves to Financial, Accounting or Tax aspects but must think broader in terms of the how the particular proposal fits within the overall strategy and economics of the organisation.

2) CFOs are often obsessed with numbers and thanks to the quarterly /half yearly reporting to analysts, may falter in seeing longer trends beyond reporting numbers. The drivers may tell a very different story from the actual P&L.

3) Many organisations, especially large ones, are so huge and ?silo-ed? that the focus of the staff becomes largely internal or at most superficially external. The biggest risks actually come from external developments not internal.

4) Rely on the robustness of systems and processes rather than the accuracy of forecasts. Most CFO?s are obsessed with getting forecasts right.

5) Watch cycles. Unfortunately, large companies operate in cycles so when you are feeling like you are on the top of the cycle, probe and prod for what could give way. Identify the ?weakest link?.

6) CFOs often convince themselves with spreadsheets instead of talking to the real line and business folks. The guys on the ?shop-floor? will tell you what is wrong and what could go wrong.

7) Most enterprise risk comes from the organizational structure. A complex organization structure creates more risk of adjacencies ? more chances of things that could fall in between the cracks. The creators of complex structures would argue that it is designed as checks and balances which paradoxically may just not be the case.

Whatever be the scale or size or industry of the organisation, it is imperative that CFOs will play a key role in ERM and will be required to display some of the attributes mentioned above, helping the overall organisation to not only survive but thrive in a world filled with increasing uncertainty and challenges.

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Source: http://cfoevent.wordpress.com/2012/03/12/cfos-role-in-enterprise-risk-management/

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